Facebook acquires virtual reality headset maker Oculus VR for $2Bn

Facebook is making big bets for its future. The company has reached a definitive agreement to acquire Oculus VR, makers of the virtual reality prototype headset Oculus Rift for approximately $2 billion. This includes $400 million in cash and around $1.6 billion worth of Facebook common shares. (23.1 million shares at an average closing price of $69.35 per share).

The agreement also includes a provision for an additional $300 million earn-out in cash & stock based on the achievement of certain milestones and the transaction is expected to close in Q2 2014. This acquisition comes just a month after it acquired the mobile messaging app WhatsApp for approximately $19 billion in cash & stock. However, it’s worth noting that Oculus Rift is still a prototype and is yet to be released commercially.

Interestingly, TechCrunch cites sources to say this deal happened in just five days during the recently concluded Game Developer Conference in San Francisco.

Facebook CEO Mark Zuckerberg said that Oculus will continue to operate independently within Facebook and will initially focus on gaming. They will continue the development of Oculus Rift.

After gaming, they will be expanding Oculus to other verticals like communications, media and entertainment and education, in a bid to develop a new augmented reality-based communication platform.

Oculus Rift to become cheaper & better

In an interview to Polygon, Oculus founders said this deal will potentially allow Oculus Rift to become cheaper and better, since Facebook has the money and pull that will make hardware companies listen and they will have the ability to order components in bulk for building its headset.

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Last month, the company had reportedly suspended shipments of its development kits since it was running out of components and certain components were no longer being manufactured.

Besides this, Oculus mentions it will be able to devote resources to gaming content which they wouldn’t be able to do otherwise.

As mentioned before, the headset is not commercially available for sale yet, although the company recently released its second Oculus Rift development kit (DK2s) which is currently available for pre-order and is expected to be priced at $350 at launch. Oculus claims that it has received more than 75,000 orders for development kits and it expects to ship the first batch of DK2s in July 2014.

The company had raised $93.4 million investment from Spark Capital, Matrix Partners, Founders Fund, Formation 8, BIG Ventures and Andreessen Horowitz. This includes an initial $2.4 million funding raised from around 9,522 backers on the crowdfunding platform Kickstarter in 2012. Sadly, though these backers wouldn’t be getting anything out of this deal since Kickstarter doesn’t offer any equity to backers.

Game Developers React To Oculus Rift Acquisition

It seems like this acquisition has alienated quite a few game developers. Minecraft creator Markus Persson said they were in talks to port Minecraft to Oculus Rift, however they have now cancelled the deal following the Facebook acquisition.

We were in talks about maybe bringing a version of Minecraft to Oculus. I just cancelled that deal. Facebook creeps me out.

The Guardian also cites quite a few game developers who have raised concerns that Facebook might be looking to lock down Oculus’s virtual reality platform into its proprietary social network and make it more restricted to developers. On the flipside however, some developers also feel this acquisition could finally mean that virtual reality would become mainstream and we could possibly see wider applications of virtual reality in the future.

P.S. It looks like someone had posted about Mark Zuckerberg visiting Oculus offices on Reddit last month